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Should Supply Chain Design be a Core Competence?

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SPRINGBORO, Ohio, March 27, 2013 — In an increasingly complex and dynamic supply chain world, should supply chain design really be a core competence in most organizations?

The reality is that although some companies have built small teams (even as small as a single person) to use some sort of network design and optimization tool to answer an ongoing series of questions, do lots of "what-if analysis" and more, it is still the exception. While the number of such companies is growing, they still represent a pretty low percentage of companies that could potentially benefit from such an approach.

"Instead, those companies will use network design tools perhaps just every three to five years, when they make a major acquisition to optimize the combined network, or based on some other one-time trigger, and then use traditional spreadsheet type tools to analyze all the other issues and questions in-between.

Are many those companies missing real opportunities to make better decisions that can lead to lower supply chain costs, more optimal service and performance, better management of tradeoffs and other benefits?

Absolutely, says Toby Brzoznowski, an executive vice president at Llamasoft, a leading provider of network design software. And while given that role he may be a little biased towards use of network design tools, he made a compelling case on a recent Videocast on Supply Chain magazine's Supply Chain Television Channel that there was a significant amount of value that can be unlocked by more continuous use of these capabilities.

"Leading companies out there are the ones that are really looking at supply chain design as a process, not just a project," Brzoznowski said. "There are so many things that are changing constantly in the business world that companies are realizing they have planning and execution systems use for certain tasks, and that there are also systems that do design to continuously re-engineer the supply chain."

SCDigest editor Dan Gilmore added "I firmly believe, as I have written many times, that the companies that are really investing in this and doing supply chain network design on a continuous basis have a competitive advantage over the companies that don't. He then added that "I don't see how in today's dynamic world you can almost argue that point."

Another truism that is sometimes lost is that design is really just the flip side of supply chain strategy, Gilmore added. "How can you be doing on-going supply chain strategy without the right tools for marrying the supply chain design that goes with that strategy?" he asked.

Common supply chain design challenges
Brzoznowski said that while there are many, many questions and decisions that supply chain design tools can help companies address, there are several common ones.

One is how to enter new markets and provide the optimal supply chain support and cost structures for those strategies. He cited, for example, Starbuck's plan to roll-out 3000 to 4000 new stores in China.

"What kind of infrastructure do I need to make that happen?" Brzoznowski asked.

Another common scenario is new product introduction, he said, which brings questions such as where the product should be made, is it better to outsource early in the product's lifecycle, what the inventory strategies are going to be and more.

"These are all supply chain design related questions," Brzoznowski asked. "ERP systems and traditional planning and execution systems cannot give you the answers to those questions. They do not do supply chain design."

Other common questions include building an optimal supply strategy while factoring in risk considerations, looking across channels to see how much supply chain infrastructure could or should be shared, how to react optimally to changes in laws and regulations around the world that impact the supply chain (a growing issue), where to optimally invest capital and many more.

Gilmore noted that in the end, these questions get answered one way or the other, but if the analysis is done on spreadsheets, can you really factor in all the right variables, do you really have an optimal answer in the end, and what is your level of confidence you have telling executives what should be done?

The three primary use cases
Brzoznowski says that at a high level, there are three main use cases for supply chain design tools.

1. Better optimizing supply chain performance from an existing supply chain or any of its components by creating a "digital model" of that supply chain, ultimately from raw materials or other sourcing processes to final distribution of a company's products.

"Just seeing a model and understanding how their supply chain works is usually very eye-opening to people," Brzoznowski said, adding that it was common for companies to find several areas ripe for improvement just from this new visibility to what is really happening in their networks.

2. Performing continuous scenario analysis: These kinds of analysis opportunities come up almost every day, Brzoznowski said, whether it's looking at dynamics of fuel and other input costs to how a carrier strategy might play out.

"If you can use the digital models to test out those scenarios, it's a huge advantage," he added.

3. Rapidly responding to changes in business conditions, costs, demand, etc. One obvious example is how to optimally respond to a supply chain disruption, Brzoznowski said.

There are literally dozens of ways companies are using these design tools today, Brzoznowski said, in addition to traditional ways such as where to locate manufacturing and distribution facilities. Those include designing a tax efficient supply chain, supply chain risk analysis and mitigation, "freshness" considerations, service policy optimization, supply chain segmentation strategies and several others that extend the areas of decision support well beyond the traditional ways these tools have been used.

"I don't you could have made this presentation say 10 years ago," Gilmore said. "Companies just weren't using these tools to do these kind of things."

Source: scdigest.com, © 2013 Supply Chain Digest - All Rights Reserved

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